Let's learn from Seattle's 'head tax' debacle: Randi Thompson

Last month, the Seattle City Council unanimously passed a “head tax” ordinance that would have levied a $275 per employee tax on Seattle businesses making more than $20 million a year. The same council voted to repeal that tax last week. The tax was intended to help the city fund affordable housing and deal with their growing homeless issue.

Council members say they changed their minds in the face of a well-funded and vicious campaign that sought to put a referendum on the November ballot to repeal the head tax. That campaign was led by two companies that would be most impacted by the tax: Starbucks and Amazon.

Now if you know anything about these companies, they are run by pretty progressive CEOs. Amazon’s Jeff Bezos owns the Washington Post. Starbucks’ Howard Schultz closed every store one day last month to conduct “sensitivity training.” You’d think these CEOs wouldn’t mind paying $275 per employee to help Seattle’s homeless.

That is a lesson that city councils around the U.S. should heed. Businesses are much more comfortable with working with the private sector to solve problems than with government.

This head tax was a bad idea, especially when you consider that in 2014, the Seattle City Council passed an ordinance to increase the minimum wage up to $15 an hour for all businesses in Seattle over a few years.

In 2017, the University of Washington did a study that showed the city’s escalating minimum wage meant a slight increase in pay among workers earning up to $19 per hour, but the hours worked in such jobs have shrunk and about 5,000 jobs were lost.

Another study done by the University of Massachusetts showed that on average, minimum-wage increases eliminated jobs paying below the new minimum, but added jobs paying at or above the new minimum. The two changes effectively cancel each other out. However, that study was done on a slow increase, not the steep one that Seattle implemented.

Then there is another study done by the National Bureau of Economic Research that found evidence that employers who had to raise the minimum hourly wages of employees also reduced the amount they paid for their employees’ health-care benefits to cover those added costs.

All these confusing studies show that forcing wage increases on business have unintended consequences and may not help the very people government wants to help.

Cities around the U.S. are facing affordable housing and homeless issues, and it’s common to blame business for causing them. But cities should recognize that mandating wage and tax increases can backfire for one simple reason: Companies can move and take those valuable jobs with them!

Randi Thompson is a political and public relations consultant. You can reach her at Randi@RandiThompson.com.